Last week’s rally in Euroland was short lived with today’s big sell-off (see charts below). The political tensions are coming to the surface and markets don’t like want they see and don’t see a positive outcome.

As the Germans think out loud about a Euro breakup (see cover Der Spiegel below) here’s an excerpt from an interview with German Finance Minister Wolfgang Schäuble. He sums up the fundamental and now core problem stifling a comprehensive solution to the Euro crisis — the surrender of national sovereignty.

Schäuble: The most important thing is that we create a fiscal union, one in which the nation states give up their jurisdiction in terms of fiscal policy. In addition, the problems of the Spanish financial institutions reveal, once again, that Europe would be better off with a bank union. We need a European supervisory authority, at least over the major lenders, which can then influence the banks directly. Then we can also save them with joint funds.

SPIEGEL: For months, Germany has been under pressure to agree to joint government bonds, the so-called euro bonds. It would certainly be seen as a confidence-building measure if you complied with the wishes of the other European countries.

Schäuble: As long as we don’t have a fiscal union, we cannot assume joint liability for debts.

The Germans and French are moving further apart at a very critical and dangerous moment in the crisis. Here’s how Angela Merkel closed Friday’s Rome meeting,

If I give money to Spanish banks, I’m the German Chancellor but I can’t say what these banks can do.

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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